Qualifying Income You Might Not Know About
Lenders want to make sure borrowers can comfortably repay their loans. Doing so allows the lender to make even more home loans. Affordability is primarily determined by comparing monthly income with monthly debt. Income is relatively easy to document simply by reviewing recent paycheck stubs, W2 forms and/or tax returns. But for those who are seeking additional income support in order to buy and finance a home may not be aware there are other sources lenders can use.
Either in the form of spousal support or child support, this type of income can be used to help qualify under certain guidelines. First, there needs to be a history of timely payment. This is accomplished by providing copies of bank statements showing the monthly deposits being made and when. It is also assumed spousal support will continue into the future barring the ex-spouse receiving the income has not married. Child support payments typically continue until the child turns 18. These conditions of who pays what and when as well as when and if the payments will cease are spelled out in the signed divorce decree.
Dividends and interest from investments may also be used to supplement qualifying income. The income must be shown to be consistent over the previous two years and the borrower’s name must appear on the statement. Any other names on the statement will cause the lender to divide up the income among all who appear on the investment account. Income is averaged over the previous 24 months in order to arrive at a qualifying amount.
When someone is injured while on the job, they may be eligible to file for disability payments. This can be verified by reviewing a copy of the disability policy benefit statement. This income may also be used as long as the lender makes the determination the income will likely continue well into the future, for a minimum of three years. It can sometimes be the case that the disability is shorter term in nature, or the lender needs more information about the nature of the disability filing. However, it’s important to note that individual doctors may be reluctant to provide such personal details.
Social Security Income
This is fairly straightforward but social security income can also be used. In order for the lender to use social security income, all that is needed is a copy of the social security awards letter. A request for this letter is made directly to the Social Security Administration either by the borrower or the lender.
Like other forms of income, bonus income can be counted as long as there is a regular history of having received it. Bonus income should be both consistent and at regular intervals. Bonus income is averaged and should be paid monthly or sometimes quarterly. An annual bonus most often won’t be used. It’s thought that a holiday bonus in December may not be readily available in say July. Verification of the terms of the bonus can be obtained directly from the employer.
With a two year history of receiving part-time income as well as seasonal work such as during the holidays or during the summer, this income can also be counted when adding up qualifying income. The part-time income should also be relatively consistent. Seasonal income may be counted, depending upon the lender’s internal guidelines, again with evidence of receiving it for the most recent two years and paid out in a consistent manner.
Written by David Reed for www.RealtyTimes.com Copyright © 2019 Realty Times All Rights Reserved. Reed is from Austin, Texas and is the author of The Real Estate Investor’s Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. A Senior Loan Officer and Mortgage Executive for more than 20 years, he has also appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show.